Audit Exemption in Singapore

A private limited company is the most suitable form of business structure in Singapore. It provides benefits such as limited liability, tax savings, and simple compliance obligations. The Companies Act in Singapore has recently introduced the concept of “small company” that exempts private limited companies that fulfill certain criteria from the requirement of annual audit. This helps the company reduce its compliance costs as well as its overall regulatory burden.


T
he Companies (Amendment) Act 2014 revised the audit exemption criteria and introduced the concept of "small companies". The small company concept is applicable to existing as well as newly registered private limited companies in Singapore. This article will explain the small company concept and the qualifying conditions on the basis of which a company can be exempt from the need to perform an annual audit of its accounts.

The following topics are covered:

The New Audit Exemption Criteria

The Singapore Companies Act states that every company must get its financial statements and accounting records audited by an auditor on an annual basis unless the company meets the audit exemption requirement.

The Companies Act was amended in 2014 to update the audit exemption criteria for companies and introduced the concept of a “small company”. A company that qualifies as a small company is not required to appoint an auditor and have its accounts audited. The Amended Act was made effective starting from July 1, 2015. A company is considered to be a small company if it fulfils at least two out of the following three conditions:

  1. The total annual revenue of the company must not exceed S$10 million;
  2. The total assets of the company for the financial year end must not exceed S$10 million;
  3. The number of full-time employees at the end of the financial year must not exceed 50.

Besides private companies, group companies (holding and subsidiary companies) can also avail the audit exemption if they qualify as a small group per the criteria described below.

NOTE
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Group Company Audit Requirement

A group company is defined as a holding company and its subsidiaries that together form a group due to a common source of control.

A group company will be exempt from annual audit of its accounts if the holding and all subsidiary companies individually:

  1. Fulfil at least 2 of the small company qualifying conditions and
  2. Belong to a “small group”

To qualify as a “small group”, the group (comprising of all the companies) must fulfil two out of the following three conditions in the immediate two preceding financial years:

  1. The consolidated revenue must not exceed S$ 10 million;
  2. The consolidated total assets must not exceed S$ 10 million;
  3. The total number of employees of the group must not exceed 50.

In other words, this means that to qualify for the audit exemption, the individual subsidiary companies as well as the holding company, as a group, must fulfil the eligibility criteria of a small company.

Audit Requirement Diagram

Audit Exemption Requirement

Change in Company Audit Status

Once a company acquires the “small company” status, it continues to enjoy the audit exemption benefit unless the company is disqualified. Disqualification of a company occurs if the company:

  1. Ceases to operate as a private company in the financial year or
  2. Does not satisfy the “small company” qualifying conditions for the two immediately preceding financial years.

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Prior Criteria for Audit Exemption

Prior to the Amendment Act 2014, an Exempt Private Company with an annual turnover less than or equal to S$ 5 Million was exempt from having its accounts audited. An Exempt Private Company is a company that has less than 20 shareholders and no corporate shareholders.

Pursuant to the 2014 Amendment, the criteria has changed. Now, any company defined as a “small company” will be eligible for audit exemption.

Frequently Asked Questions and Answers

If my company is exempt from audit, am I still required to prepare and file my annual accounts?

Yes, you are still required to prepare and file your unaudited annual financial statements. Among other things, your company’s annual financial statements are the main basis for calculating and preparing your corporate tax return. The only difference is that if your company is exempt from audit, you are not required to appoint an audit firm and get your accounts officially audited.

My company qualifies as small company and therefore exempt from audit requirement. Can you handle the bookkeeping and tax filing for my business?

We offer the full spectrum of accountings and  tax filings services regardless if your company is exempt from audit or not. When an audit is required, we will liaise with the appointed audit firm to get the audit completed in an efficient and stress-free manner for you. Contact us today, if you need help.

Transitional Provisions

A company incorporated before the changes in the Act can also avail the audit exemption if the company fulfils two out of the three qualifying criteria of a small company. Specifically, a company incorporated before July 1, 2015 can qualify as a small company if:

  1. It is a private company and
  2. Meets the qualifying criteria either in the first or second financial year after the commencement of the small company criteria (i.e. July 1, 2015)

The following table explains the transitional provisions:

Qualifying Criteria in the Financial Year (FY) Small Company
The Company meets the Qualifying Criteria in FY 15 and FY 16 Company is a Small Company
The Company meets the Qualifying Criteria in FY 15 but not in FY 16 Company is a Small Company since the company meets the criteria in the first year after the introduction of the concept
The Company does not meet the Qualifying Criteria in FY 15 but does meet it in FY 16 Company is a Small Company since the company meets the criteria in the second year after the introduction of the concept
The Company does not meet the Qualifying Criteria in FY 15 or FY 16 Does not qualify as a small company since the company does not meet the criteria in the first and second year after the introduction of the concept.

The transitional provisions are applicable only for the first two years from the change in this law.

Summary

The amendment to audit exemption criteria further simplifies the compliance obligations for small companies. More companies including subsidiaries of foreign companies that meet the ‘small company’ definition will not be eligible for the audit exemption. Singapore is a very attractive choice for setting up a base for your business. The country promotes some of the best business-friendly policies in the world making it easy to plant roots for your business and thrive. It is a world-class economy full of opportunities for people with innovative ideas and the drive to create a successful business.

Why Singapore

Recently, CorporateServices.com conducted a survey of startup founders from five countries. To assess global sentiment about Singapore’s attractiveness as a startup location, the survey assessed Singapore on metrics considered important by entrepreneurs. Read our report for more details.

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